The financial crisis that Cleveland will face if LeBron James leaves
A few months from now, the King will be deciding which city will have the privilege of watching him play almost nightly next season in his pursuit of more championship rings. LeBron James’ free agency this summer will not only affect fans but also the economy of the city he will leave.
When James first left Cleveland in 2010, Joe Roman of the Greater Cleveland Partnership said that the $180-billion economy of Northeastern Ohio wouldn’t feel the impact of James’ move to Miami. Well, that is not entirely true.
In a recent study from Harvard Kennedy School conducted by Daniel Shoag and Stan Veuger, it showed that although sporting events and venues do not have a significant impact on a city’s economy, superstars can.
thletes like James can “generate disproportionate returns” and influence various performance indicators such as game attendance, franchise performance, and local business profits.
What The King Brings To The City
Shoag and Veuger’s Harvard paper titled “Taking My Talents to South Beach (and Back)” showed that James “has a statistically and economically significant positive effect on both the number of restaurants and other eating and drinking establishments near the stadium where he is based.” This also includes the aggregate employment at those establishments.
Not only that, the researchers have concluded that his presence increases the number of similar establishments within one mile of the stadium by about 13%, and the employment by about 23.5%. It is very clear that local businesses will benefit from the King’s future landing spot, wherever that may be.
To give you an even clearer picture of what might happen to Cleveland’s economy, let’s backtrack to 2010 and see what James contributed to the city.
What Cleveland Lost
More than just losing tons of live highlight reels from James, the people of Cleveland also lost a lot financially. It was estimated back then that downtown businesses would lose $48 million over one season. For three straight seasons, the Quicken Loans Arena had seen sellout crowds reaching over 20,500. There’s no doubt that everybody wanted to see the Chosen One.
Economics professor Jerry Hausman of Massachusetts Institute of Technology had seen this during Michael Jordan’s time. He said people filled up restaurants, went to bars after and spent a lot of money during his reign in Chicago. Similarly, according to Positively Cleveland, the city’s tourism bureau said that the average fan spent $180 per game to see the Cavs play at The Q.
That translated to roughly $1.2 million per game and if you multiply it by 41 home games, you get the $48 million revenue loss. But that’s not all. Let’s talk about the playoffs.
According to economist John Skorburg of the University of Illinois at Chicago, James generated $15 million for each playoff game with people eating at restaurants, bar-hopping, buying memorabilia, renting cars, and more. He was even looking at a conservative $100 per person.
So if you will multiply $15 million to 10 playoff games, that’s a $150-million loss on top of the $48 million during the regular season. Then, there’s the inevitable decrease of franchise and media value. According to Forbes, the year after The King left, the Cavaliers franchise’s value declined by 26% to $355 million and dipped a bit more by seven percent to $329 million a year later.
Since the Cavs were playing poorly, TV ratings also fell by 55%. They were putting tickets on sale due to the steep decline in attendance. In 2012, the Cavaliers plummeted to rank 19 in attendance before further dropping to rank 22 the following year.
But it doesn’t end there. Even the local government suffered when James left. The three-time NBA champion pays over one million dollars in local taxes every year. Imagine the number of projects that could’ve been funded with that amount of money.
What Miami Gained
When James formed the Big 3 in Miami, it boosted the Heat’s franchise value to a league-high 17% to $425 million. On his second year, the Heat’s value increased further by 8% to $457 million. By 2014, it skyrocketed to $770 million. This is the result of James bringing his team to four straight NBA Finals appearances which boosted ticket sales, sponsorships, restaurant profits, and more. He also put the Heat back in the spotlight by doubling its TV ratings.
The Heat also commissioned a study to show the team’s impact on the city of Miami. The study showed that the King and his court helped bring in $1.4 billion each year including 21,000 jobs for residents in South Florida.
From the same Harvard paper, we were referring to earlier, it is evident in the graphs below how Miami restaurants fared better during the time James was there versus to how Cleveland restaurants were doing when he left. But you can also see the decline on the year he returned to the Cavs.
What Cleveland Regained
Aside from gaining back the best player in the world, Cleveland also got back a lot of business. Since James’ return, the Cavaliers’ franchise value has skyrocketed to $1.325 billion.
Not only that, when James came back in 2014 ticket sales for his first game reached $588. In terms of licensed team merchandise from the largest online seller, Fanatics reported that the Cavs became the top-selling NBA team up by 700% compared to 2013.
Cuyahoga County, a county in Ohio, projected an $80-million boost to Cleveland’s local economy. Hotel owners saw advanced bookings since James arrived.
In 2015, an economic impact study done by the Convention Sports & Leisure, every Cavs playoff game had a $3.6 million economic impact and every NBA Finals game had a five million dollar impact. In fact, Games 3 and 4 of the NBA Finals in Cleveland generated $927,000 in admission taxes. On top of that, the Quicken Loans Arena created 3,500 jobs and generated $288 million in total output plus $34 million in taxes to the local government in 2015 alone.
In the graph below, you can see the big leap in restaurant sales during the time James went back to Cleveland. It only shows that the four-time MVP can pull millions of people together and bring in millions of dollars in business because that’s what superstar athletes do.
What Cleveland Might Lose Again
In a few months, James might leave again. If that happens, the local economy of Cleveland will take a big hit once more. It may cost millions of dollars and thousands of jobs. But more than anything, it will cause heartbreak all over again to the loyal sports fans of the city’s most important sports team. It will be a déjà vu of 2010 but maybe less painful since the 14-time All-Star already delivered on his promise to bring a title to The Land.
One thing’s for sure, wherever James goes, he brings with him not only fame but also fortune and thousands of employment opportunities in between. After all, James knows how to take care of his courts, both literally and figuratively. This is why every franchise will request an audience from the King because he can give any city its best chance at victory and glory—something only a true royalty can bestow.